How to Read a Pay Stub

When you become an employed individual, whether that be part-time or full-time, you are likely to receive a pay stub. To read it and understand how much income you are actually receiving, there are certain sections and tax laws to understand.

Key Takeaways

  • Understanding the information on your pay stub is crucial to managing your money, but few people check it regularly. 
  • Your pay stub contains three main sections: how much you are being paid, the taxes you are paying, and any other deductions that are being made.
  • Pay attention to your gross, year-to-date, and net earnings.
  • The deductions that relate to taxes are generally the most confusing, particularly those related to FICA.
  • Other common deductions are for different types of insurance, such as life, medical, dental, and retirement plans.

What is a Pay Stub?

A pay stub is a document that summarizes how your total earnings during a specific pay period were distributed. A pay stub is generally broken down into three main sections: how much you are being paid, the taxes you are paying, and any other deductions that are being made. 

The amount you are being paid for the current pay period (whether it's weekly, biweekly, twice monthly, or monthly) generally comes first on your pay stub and is the most straightforward figure to understand.

What you'll likely see in this section depends on whether you are a salaried or an hourly worker. If you work by the hour, your hourly rate and the number of hours you worked for the pay period will be listed. You may also see overtime hours. If you earn an annual salary, you'll see your salary for the pay period and possibly bonuses.

Why is a Pay Stub Important?

Pay stubs may seem frivolous. However, they do serve a much-needed purpose. The pay stub is important because it serves as a point of reference and accountability for both the employee and the employer. 

As an employee, seeing your take home pay and what was taken out for tax purposes can be beneficial. You can use it as a guide when creating a budget to properly understand how much is coming in and where your money is going. 

Your pay stubs may also be requested if you are moving into a new house or renting. Landlords and financial lenders may use your pay stubs to verify your income to be sure you can afford the rent or mortgage. They may also be applicable when seeking other types of loans such as car loans. 

It’s also not uncommon for government agencies or nonprofit organizations to request copies of your pay stubs if you apply for financial assistance, like student loans, for example. 

Finally, your paystub can be essential in holding your employer accountable. If you check your pay stub regularly, you’ll be able to notice and rectify any payment inaccuracies, tax withholding issues, and more. If there are issues, you can use your pay stub as proof.

Elements of a Pay Stub

In addition to basic personal information such as your name, Social Security number, and potential employee ID, there is a lot of information displayed on a pay stub. Below, we break it down so it’s easier to understand when you start earning an income.

  • Pay period: This is the calendar dates that your paycheck covers. For example, if you get paid every two weeks, the pay period may look something like 3/1/23-3/15/23. You may also see “pay date” on the stub, and that is simply the day you receive funds.
  • Hours worked: This will list the number of hours you worked during the specific pay period, and it is common for hourly or part-time workers. If you work 20 hours a week and your pay period is two weeks, the number of hours worked will likely state 40 hours.
  • Gross pay: Gross pay is the money you earn before any deductions and withholdings are taken out. 
  • Year to date: This is the total amount of money you earned in a calendar year. It is also referred to as YTD on pay stubs, and is usually found next to deductions, net pay, and gross pay. 
  • Deductions: This refers to taxes, insurance premiums, and the cost of other programs that are subtracted from your total gross wages. Some deductions that may be listed include FICA tax and Medicare.
  • Net pay or net income: The total amount of money earned minus the amount taken out from taxes and other deductions. Some people refer to it as “take-home pay.”

Retirement contributions are likely not on your pay stub because this amount is taken out before your tax withholdings are calculated, reducing your tax liability.

While the above elements are all commonly found on paystubs, they may vary depending on your personal circumstances. For example, you may live in a state that doesn’t collect state income taxes. Or you may be on someone else’s healthcare plan, so you wouldn’t have any benefit deductions on your pay stub. 

What Pay Stub Deductions & Taxes Mean for Your Net Pay

Earning and net pay are not the same. Earnings refer to the amount of money you made in total. Net pay is the amount of money you “take home with you” after the deductions are taken out of your paycheck. Deductions are subtracted from your gross pay to give you your net pay. 

These deductions can vary depending on your own personal financial situation. If you are a part-time employee, own your own business, or full-time employee, what you can deduct will look very different. If you need help understanding your deductions when tax season rolls around, consider consulting with a financial professional or advisor.

Federal Income Taxes

The principle behind federal income tax is that the government withholds a certain percentage of the money you earn in a year. However, that percentage can be fiendishly difficult to calculate for any individual.

The basic calculation is shown, below.

  1. Your employer reports your annual salary as well as the number of dependents you report on your W-4 form to the federal government.
  2. The Internal Revenue Service (IRS) then works out an estimate of how much federal income tax you should pay for a given year and divides this by the number of paychecks you will receive (generally 12, 24, or 26).
  3. They will then deduct this amount from each paycheck. The same process applies to hourly employees—if you are paid hourly, your employer will estimate your monthly income, and you will have a percentage of your pay withheld for federal income tax.

Sometimes, the amount of federal income tax deducted from your earnings may be too high or too low. This could be due to a job change or the birth of a child, for instance. If your circumstances change, then you should inform the IRS or your company’s human resources (HR) department as soon as possible. If you have paid too much tax, they will calculate the amount you are due and pay you a refund.

State and Local Taxes (SALT)

You may also see state taxes deducted from your paycheck. State tax rates vary significantly from state to state; some states, like Florida and Texas, don’t have a state income tax. If you need to pay state income taxes, they are calculated in much the same way as federal income taxes.

Some localities levy an income tax. Some do not. If your city imposes an income tax, then you will likely have an amount withdrawn from each paycheck labeled local or with the name of your locality. You will generally pay the same amount each pay period for both state and local income taxes, so long as the amount you earn remains the same.

Other Deductions

Most paychecks will also contain a number of other deductions—on top of the taxes you are paying—that will further reduce your take-home pay. These may be included in the section with your taxes. Just as with your taxes, it’s impossible to detail all of them. But you should understand each deduction listed on your paycheck. If any aspect is unclear, it’s always best to consult with your employer. Here are the most common ones:

Health savings accounts (HSAs) and flexible spending accounts (FSAs) are programs designed to allow people with health insurance to put money aside for qualified medical expenses. HSAs are designed for those who have a high-deductible health plan (HDHP). The money you put into an HSA or FSA can be used tax-free to pay for certain out-of-pocket healthcare costs as they arise. If you are enrolled in one of these programs, your contributions to your account will also show up on your paycheck.

How to Get a Copy of Your Pay Stub

If you don’t have your pay stub, they are generally easily accessible. In most cases, you can retrieve them digitally by logging into the company payroll website. You were likely given access to it along with login information when you were initially hired. 

If you are unsure about login information or where to find a pay stub, you can ask your manager or someone in the human resources department to assist you. They will likely provide you with online access or give you physical copies of the pay stubs for any given pay period. 

If you are a government employee receiving payment from the state, you can often request copies of pay stubs directly from the state government website. In New York, for example, you just need to input some personal information, as well as the pay period you are asking for.

Is a Pay Stub the Same as a Paycheck?

A pay stub and a paycheck are not the same thing. A paycheck states the amount that was earned, but is not as detailed as a pay stub. A pay stub is a list that breaks down everything earned, taxed, and withheld. It is generally sent or shared digitally.

What are Red Flags on a Pay Stub?

Some red flags to look out for on your pay stub include the misspelling of key personal information such as your name or Social Security number. Other red flags can include no tax withholdings or inconsistent pay. It is good practice to review your pay stub when received and make sure there are no discrepancies. 

What is the most important part of a pay stub?

All the information on your pay stub is important to insure you are being compensated correctly. Be sure to review all the parts of your pay stub including deductions, withholdings, and earnings frequently to make sure you are all your money is going where it is supposed to go.

The Bottom Line

A pay stub is a tool one can use to understand how much money you have coming in and where your money is going. Understanding and reviewing the elements of your pay stub from a young age is important to growing strong financial habits.

Pay stubs in the U.S. vary according to how they are generated, but most contain a number of key features, including your pay, taxes, and deductions. It’s important to ensure that this information is correct, but not enough people make an effort to do so. Doing your own calculations—or verifying the accuracy of those performed by the IRS—can save you (or your employer) from making a costly mistake.

Article Sources
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  2. Consumer Financial Protection Bureau. “What's On a Pay Stub.”

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  4. Internal Revenue Service. "Publication 15-T, Federal Income Tax Withholding Methods," Pages 4, 9.

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  6. Tax Foundation. "State Individual Income Tax Rates and Brackets for 2023."

  7. Tax Foundation. "Local Income Taxes: A Primer," Page 1.

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